Nio Earnings: Revenue and Loss Largely In Line, but Vehicle Margin Missed Amid Price Competition

Key Morningstar Metrics for Nio

• Fair Value Estimate: $7.70
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Nio’s Earnings

Nio’s NIO first-quarter vehicle margin missed the company’s previous guidance in the low teens, despite gaining 4 percentage points year over year to 9% thanks to lower battery cost. With lower vehicle margin and selling price, as well as rising operating expense assumptions, we increase our net loss forecasts for 2024-25 and reduce our fair value estimate to $7.70 per share. Our fair value implies a forward 2024 price/sales ratio of 1.8 times.

For the second quarter, management guided vehicle delivery to increase by 1.3-1.4 times year over year to 54,000-56,000 units and total revenue to increase 89%-95% year over year to CNY 16.6 billion-CNY 17.1 billion. The midpoint of guidance implies June monthly delivery to be about 18,800 units, which we believe is slightly below market expectations. During the analyst call, management seemed confident about maintaining delivery of about 20,000 units monthly for the following few months, given robust new orders. In addition, the company launched the Onvo brand in May, and the first model, the L60, will be delivered in the third quarter.

Despite intensifying competition even in the premium segment, we believe shares are undervalued for long-term investors. While we believe vehicle margin will remain under pressure in the near term, given price competition, we expect the margin to record sequential recovery from the second half as economies of scale kick in with additional contributions from Onvo cars. Management indicated that vehicle margin would improve to double digits in the second quarter and further expand in the second half. Nio’s expanding partnership with other automakers for battery-swapping services and charging technologies should also help the company realize operational efficiency for its charging network and turn that segment around.